Monday, April 9, 2012

How do you say "trouble" in German?

Just as there are trouble signs brewing here in the US of a possible stock market pullback, Europe is showing some cracks in its armor as well. Just look at the chart below of the leading index there, the DAX, and you will see what I mean.



The DAX was up over 21% YTD in mid March and has since pulled back to close out Fridays action up slightly below 15% for the year. Normally a 6% retracement from a high is not anything to worry about but Thursdays close in the DAX below its 50day sma should be cause for concern. After all, the DAX has been up solidly from late December 2011 when it crossed above its 50day sma and held an early March test on the same moving average. Although 2 days below its 50day is not the end of the world, above average volume which we saw on Thursday and Friday, coupled with another day or 2 below, should have the longs shaking in their lederhosen. If the index does not get back over its 50day in the following day or 2 it should retrace back to the 6500 area or possibly down to its 100day sma near 6400. If so, watch for selling in German ADRs and related stocks...


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